UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended June 30, 2008
or
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from________ to ________
Commission
File Number 0-18672
ZOOM
TECHNOLOGIES, INC.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
|
|
51-0448969
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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|
|
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207
South Street, Boston, Massachusetts
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|
02111
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
Telephone Number, Including Area Code: (617)
423-1072
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. YES x
NO
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
|
Smaller Reporting Company
|
x
|
(do not check if a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No
x
The
number of shares outstanding of the registrant’s Common Stock, $.01 par value,
as of August 12, 2008, was 1,869,393 shares.
ZOOM
TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX
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Page
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Part
I.
|
Financial
Information
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Item
1.
|
Condensed
Consolidated Balance Sheets as of June 30, 2008 and December 31,
2007
(unaudited)
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3
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Condensed
Consolidated Statements of Operations for the three and six months
ended
June 30, 2008 and 2007 (unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the three and six months
ended
June 30, 2008 and 2007 (unaudited)
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5
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Notes
to Condensed Consolidated Financial Statements
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6-8
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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9-15
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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16
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Item
4.
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Controls
and Procedures
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16
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Part
II.
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Other
Information
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Item
1A
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Risk
Factors
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17-22
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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23
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Item
6.
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Exhibits
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23
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Signatures
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24
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Exhibit
Index
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25
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Exhibits
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PART
I - FINANCIAL INFORMATION
ZOOM
TECHNOLOGIES, INC.
Condensed
Consolidated Balance Sheets
(unaudited)
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June 30, 2008
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December 31, 2007
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ASSETS
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Current
assets
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Cash
and cash equivalents
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$
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2,988,041
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$
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3,647,654
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Accounts
receivable, net of allowances of $1,014,194 at June 30, 2008 and
$1,400,803 at December 31, 2007
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1,737,364
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2,128,888
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Inventories
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3,170,985
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4,452,503
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Prepaid
expenses and other current assets
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286,555
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336,424
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Total
current assets
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8,182,945
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10,565,469
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Equipment,
net
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143,203
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172,070
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Investments
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1,504,205
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1,178,709
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Total
assets
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$
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9,830,353
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$
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11,916,248
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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Current
liabilities
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Accounts
payable
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$
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1,723,964
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$
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2,079,325
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Accrued
expenses
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519,614
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415,468
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Deferred
gain on sale of real estate
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149,061
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340,913
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Total
current liabilities
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2,392,639
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2,835,706
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Total
liabilities
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2,392,639
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2,835,706
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Stockholders'
equity
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Common
stock, $0.01 par value:
|
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Authorized
- 25,000,000 shares; issued – 1,871,073 shares, including shares held in
treasury
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93,554
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93,554
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Additional
paid-in capital
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31,622,853
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31,507,393
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Accumulated
deficit
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(24,855,793
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)
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(23,100,390
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)
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Accumulated
other comprehensive income (loss)–currency translation
adjustment
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584,422
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587,307
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Treasury
stock (1,680 shares), at cost
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(7,322
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)
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(7,322
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)
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Total
stockholders' equity
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7,437,714
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9,080,542
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Total
liabilities and stockholders' equity
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$
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9,830,353
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$
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11,916,248
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·
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The
common stock share quantities on the Condensed Consolidated Balance
Sheet
have been restated to reflect Zoom’s 1:5 reverse stock split that was
effective August 7, 2008.
|
See
accompanying notes.
ZOOM
TECHNOLOGIES, INC.
Condensed
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2008
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2007
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2008
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2007
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Net
sales
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$
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4,061,451
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$
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4,342,052
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$
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7,642,028
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$
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9,096,308
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Cost
of goods sold
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3,143,067
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3,871,321
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5,999,640
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7,505,794
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Gross
profit
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918,384
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470,731
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1,642,388
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1,590,514
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Operating
expenses:
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Selling
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821,733
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878,154
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1,562,294
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1,771,726
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General
and administrative
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589,515
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606,624
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1,136,990
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1,245,541
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Research
and development
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436,285
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490,875
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903,195
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982,214
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1,847,533
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1,975,653
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3,602,479
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3,999,481
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Operating
profit (loss) before gain on sale of real estate
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(929,149
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)
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(1,504,922
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)
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(1,960,091
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)
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(2,408,967
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)
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Gain
on sale of real estate
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95,926
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95,626
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191,852
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191,552
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Operating
profit (loss)
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(833,223
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)
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(1,409,296
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)
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(1,768,239
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)
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(2,217,415
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)
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|
|
|
|
|
|
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Other:
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Interest
income
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11,780
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71,194
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38,560
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149,240
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Other,
net
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(11,833
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)
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(544
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)
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(25,724
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)
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(20,563
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)
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Total
other income(expense), net
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(53
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)
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70,650
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12,836
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128,677
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|
|
|
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|
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|
|
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|
|
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Income
(loss) before income taxes
|
|
|
(833,276
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)
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(1,338,646
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)
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(1,755,403
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)
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(2,088,738
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)
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Income
taxes (benefit)
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|
—
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|
|
—
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|
|
—
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|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net
income (loss)
|
|
$
|
(833,276
|
)
|
$
|
(1,338,646
|
)
|
$
|
(1,755,403
|
)
|
$
|
(2,088,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
and diluted net income (loss) per share
|
|
$
|
(0.45
|
)
|
$
|
(0.72
|
)
|
$
|
(0.94
|
)
|
$
|
(1.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common and common equivalent shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
and diluted
|
|
|
1,869,393
|
|
|
1,869,393
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|
|
1,869,393
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|
|
1,869,393
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|
·
|
The
common stock share quantities and net income (loss) per share on
the
Condensed Consolidated Statement of Operations have been restated
to
reflect Zoom’s 1:5 reverse stock split that was effective August 7,
2008.
|
See
accompanying notes.
ZOOM
TECHNOLOGIES, INC.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,755,403
|
)
|
$
|
(2,088,738
|
)
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating
activities:
|
|
|
|
|
|
|
|
Gain
on sale of real estate
|
|
|
(191,852
|
)
|
|
(191,552
|
)
|
Stock
based compensation
|
|
|
115,460
|
|
|
148,812
|
|
Depreciation
and amortization
|
|
|
32,606
|
|
|
41,909
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
390,008
|
|
|
903,623
|
|
Inventories
|
|
|
1,281,150
|
|
|
295,346
|
|
Prepaid
expenses and other assets
|
|
|
49,712
|
|
|
7,576
|
|
Accounts
payable and accrued expenses
|
|
|
(251,569
|
)
|
|
(1,149,005
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
(329,888
|
)
|
|
(2,032,029
|
)
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
(325,496
|
)
|
|
—
|
|
Additions
to property, plant and equipment
|
|
|
(3,757
|
)
|
|
5,887
|
|
Net
cash provided by (used in) investing activities
|
|
|
(329,253
|
)
|
|
5,887
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(472
|
)
|
|
1,103
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
(659,613
|
)
|
|
(2,025,039
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
3,647,654
|
|
|
7,833,046
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
2,988,041
|
|
$
|
5,808,007
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
$
|
—
|
|
Income
taxes
|
|
$
|
—
|
|
$
|
—
|
|
See
accompanying notes.
ZOOM
TECHNOLOGIES, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(1) Summary
of Significant Accounting Policies
The
condensed consolidated financial statements of Zoom Technologies, Inc. (the
"Company") presented herein have been prepared pursuant to the rules of the
Securities and Exchange Commission for quarterly reports on Form 10-Q and do
not
include all of the information and disclosures required by accounting principles
generally accepted in the United States of America. These financial statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2007 included in the Company's
2007 Annual Report on Form 10-K.
The
accompanying financial statements are unaudited. However, the condensed balance
sheet as of December 31, 2007 was derived from audited financial statements.
In
the opinion of management, the accompanying financial statements include all
adjustments, normal recurring adjustments, necessary for a fair
presentation.
The
accompanying financial statements include the accounts of the Company and its
wholly-owned subsidiary, Zoom Telephonics, Inc. All intercompany accounts and
transactions have been eliminated in consolidation.
The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the entire year.
|
(a)
|
Recently
Issued or Proposed Accounting
Pronouncements
|
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements”, (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring the fair value of assets and
liabilities, and expands disclosure requirements regarding the fair value
measurement. SFAS 157 does not expand the use of fair value measurements. This
statement, as issued, is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those
fiscal years. FASB Staff Position (FSP) FAS No. 157-2 was issued in February
2008 and deferred the effective date of SFAS 157 for nonfinancial assets and
liabilities to fiscal years beginning after November 2008. As such, the Company
adopted SFAS 157 as of January 1, 2008 for financial assets and liabilities
only. There was no significant effect on the Company’s financial statements. The
Company does not believe that the adoption of SFAS 157 to non-financial assets
and liabilities will significantly effect its financial statements.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for
Financial Assets and Liabilities—Including an amendment of FASB Statement
No. 115” (“SFAS 159”). SFAS 159 expands the use of fair value
accounting but does not affect existing standards which requires assets or
liabilities to be carried at fair value. The objective of SFAS 159 is to
improve financial reporting by providing companies with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets
and
liabilities differently without having to apply complex hedge accounting
provisions. Under SFAS 159, a company may elect to use fair value to
measure eligible items at specified election dates and report unrealized gains
and losses on items for which the fair value option has been elected in earnings
at each subsequent reporting date. Eligible items include, but are limited
to,
accounts receivable, investments in debt and equity securities, accounts
payable, and issued debt. If elected, SFAS 159 is effective for fiscal
years beginning after November 15, 2007. The Company has not elected to
measure any additional assets or liabilities at fair value that are not already
measured at fair value under existing standards.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”). SFAS 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired.
SFAS 141(R) also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination.
SFAS 141(R) is effective for fiscal years beginning after December 15,
2008. The Company will apply the provisions of SFAS 141 (R) to any acquisition
after January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, “Accounting for Non-controlling
Interests” (“SFAS 160”). SFAS 160 clarifies the classification of
non-controlling interests in consolidated balance sheets and reporting
transactions between the reporting entity and holders of non-controlling
interests. Under this statement, non-controlling interests are considered equity
and reported as an element of consolidated equity. Further, net income
encompasses all consolidated subsidiaries with disclosure of the attribution
of
net income between controlling and non-controlling interests. SFAS No. 160
is
effective prospectively for fiscal years beginning after December 15, 2008.
Currently, there are no non-controlling interests in any of the Company’s
subsidiaries.
In
March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 161, “Disclosures about Derivative Instruments and Hedging Activities —
an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 amends and
expands the disclosure requirements of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (“SFAS 133”). It requires
enhanced disclosures about (i) how and why an entity uses derivative
instruments; (ii) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations; and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. SFAS 161 is effective for
the
Company beginning January 1, 2009.
(2)
Liquidity
On
June
30, 2008 the Company had working capital of $5.8 million, including $3.0 million
in cash and cash equivalents.
To
conserve cash and manage liquidity, the Company has implemented cost cutting
initiatives including the reduction of employee headcount and overhead costs.
The employee headcount was 68 at June 30, 2007 and 63 at June 30, 2008. The
Company plans to continue to assess its cost structure as it relates to revenues
and cash position, and the Company may make further reductions if the actions
are deemed necessary.
The
Company's total current assets at June 30, 2008 were $8.2 million and current
liabilities were $2.4 million. The Company did not have any long-term debt
at
June 30, 2008. Management believes it has sufficient resources to fund its
planned operations through at least June 30, 2009. However, if the Company
is
unable to increase its revenues, reduce its expense, or raise capital the
Company's longer-term ability to continue as a going concern and achieve its
intended business objectives could be adversely affected.
(3)
Inventories
|
|
June 30, 2008
|
|
December 31, 2007
|
|
Inventories
consist of :
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
1,938,048
|
|
$
|
2,913,556
|
|
Work
in process
|
|
|
128,781
|
|
|
189,295
|
|
Finished
goods
|
|
|
1,104,156
|
|
|
1,349,652
|
|
Total
Inventories
|
|
$
|
3,170,985
|
|
$
|
4,452,503
|
|
(4)
Comprehensive Income (Loss)
Comprehensive
income (loss) follows:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
income (loss)
|
|
$
|
(833,276
|
)
|
$
|
(1,338,646
|
)
|
$
|
(1,755,403
|
)
|
$
|
(2,088,738
|
)
|
Foreign
currency translation adjustment
|
|
|
870
|
|
|
20,692
|
|
|
(2,885
|
)
|
|
24,557
|
|
Comprehensive
income (loss)
|
|
$
|
(832,406
|
)
|
$
|
(1,317,954
|
)
|
$
|
(1,758,288
|
)
|
$
|
(2,064,181
|
)
|
(5)
Contingencies
The
Company is party to various lawsuits and administrative proceedings arising
in
the ordinary course of business. The Company evaluates such lawsuits and
proceedings on a case-by-case basis, and its policy is to vigorously contest
any
such claims that it believes are without merit. The Company's management
believes that the ultimate resolution of such pending matters will not
materially and adversely affect the Company's business, financial position,
results of operations or cash flows.
(6)
Segment and Geographic Information
The
Company’s operations are classified as one reportable segment. The Company’s net
sales follow:
|
|
Three Months
|
|
|
|
Three Months
|
|
|
|
Six Months
|
|
|
|
Six Months
|
|
|
|
|
|
Ended
|
|
% of
|
|
Ended
|
|
% of
|
|
Ended
|
|
% of
|
|
Ended
|
|
% of
|
|
|
|
June 30, 2008
|
|
Total
|
|
June 30, 2007
|
|
Total
|
|
June 30, 2008
|
|
Total
|
|
June 30, 2007
|
|
Total
|
|
North
America
|
|
$
|
2,716,488
|
|
|
67
|
%
|
$
|
2,629,708
|
|
|
61
|
%
|
$
|
5,125,886
|
|
|
67
|
%
|
$
|
6,115,371
|
|
|
67
|
%
|
UK
|
|
|
1,002,285
|
|
|
25
|
%
|
|
1,067,779
|
|
|
25
|
%
|
|
1,681,277
|
|
|
22
|
%
|
|
1,730,734
|
|
|
19
|
%
|
All
Other
|
|
|
342.678
|
|
|
8
|
%
|
|
644,565
|
|
|
14
|
%
|
|
834,865
|
|
|
11
|
%
|
|
1,250,203
|
|
|
14
|
%
|
Total
|
|
$
|
4,061,451
|
|
|
100
|
%
|
$
|
4,342,052
|
|
|
100
|
%
|
$
|
7,642,028
|
|
|
100
|
%
|
$
|
9,096,308
|
|
|
100
|
%
|
(7)
Customer Concentrations
Relatively
few customers account for a substantial portion of the Company's net sales.
In
the second quarter of 2008 the Company's net sales to its top three customers
accounted for 39% of its total net sales. In the second quarter of 2007 the
Company's net sales to its top three customers accounted for 45% of its total
net sales. The Company's customers generally do not enter into long-term
agreements obligating them to purchase the Company’s products. The Company may
not continue to receive significant revenues from any of these or from other
large customers. A reduction or delay in orders from any of the Company's
significant customers, or a delay or default in payment by any significant
customer could materially harm the Company's business and prospects. Because
of
the Company's significant customer concentration, its net sales and operating
income could fluctuate significantly due to changes in political or economic
conditions, or the loss, reduction of business, or less favorable terms with
any
of its significant customers.
(8)
Investments
As
of
June 30, 2008 and December 31, 2007 the Company owned all the Series A Preferred
Shares of Unity Business Networks, LLC.
On
January 22, 2008, the Company and RedMoon, Inc., a provider of wireless networks
headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
Purchase Agreement pursuant to which the Company made an initial investment
of
$300,000 in 6% convertible notes (the “Notes”) and agreed to purchase an
additional $50,000 per month of 6% convertible notes beginning on May 1, 2008
and continuing until the earlier of (i) the Company’s election to exercise the
option to purchase all outstanding stock of RedMoon contained in the Option
Agreement described below or (ii) the Company’s election to terminate such
Option Agreement, up to a maximum total investment of $500,000. On April 30,
2008 the Company notified RedMoon of the Company’s decision not to invest
$50,000 on May 1, 2008 due to the lack of required information. The Company
expects that the option will not be exercised and will terminate in accordance
with its terms on August 31, 2008.
As
of
June 30, 2008 the Company’s investment in RedMoon’s Notes is stated at cost of
$325,496, which includes legal and other investment related costs.
As
of
January 22, 2008, the Company and RedMoon entered into a Security Agreement
granting the Company a security interest in certain equipment of RedMoon, and
the Company, RedMoon, and certain of RedMoon’s stockholders entered into a
Voting Agreement whereby the Company and certain stockholders of RedMoon agreed
to elect Frank Manning, Chief Executive Officer of the Company, and Bryan
Thompson, Chief Executive Officer of RedMoon, to the Board of Directors of
RedMoon.
(9)
Other Events
On
June
26, 2008, the stockholders of the Company approved a reverse stock split within
the range of one-for-two and one-for-nine. On July 29, 2008, the Board of
Directors approved a one-for-five reverse stock split which became effective
on
August 7, 2008. All common stock information presented herein has been
retroactively restated to reflect the reverse stock split
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with the safe
harbor statement and the risk factors contained in Item IA of Part II of this
Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year
ended December 31, 2007, and in our other filings with the SEC. Readers should
also be cautioned that results of any reported period are often not indicative
of results for any future period.
Overview
We
derive
our net sales primarily from sales of Internet-related communication products,
principally broadband and dial-up modems and other communication products,
to
retailers, distributors, Internet Service Providers and Original Equipment
Manufacturers. We sell our products through a direct sales force and through
independent sales agents. Our employees are primarily located at our
headquarters in Boston, Massachusetts and our sales office in the United
Kingdom. We are experienced in electronics hardware, firmware, and software
design and test, regulatory approvals, product documentation, and packaging;
and
we use that experience in developing each product in-house or in partnership
with suppliers who are typically based in Asia. Electronic assembly and testing
of the Company’s products in accordance with our specifications is typically
done in China.
For
many
years we performed most of the final assembly, test, packaging, warehousing
and
distribution at a production and warehouse facility on Summer Street in Boston,
Massachusetts, which has also engaged in firmware programming for some products.
On June 30, 2006 we announced our plans to move most of our Summer Street
operations to a dedicated facility in Tijuana, Mexico commencing approximately
September 1, 2006, and we have since
implemented
that plan. Our lease for our Summer Street facility expired in August 2006,
and
we completely vacated the facility on September 30, 2006. Our Mexican
manufacturing
operation is managed by a maquiladora management company.
Since
1983 our headquarters has been near South Station in downtown Boston.
Zoom
historically
owned
two adjacent buildings which connect on most floors, and which house our entire
Boston staff. In December 2006 we sold our headquarters buildings to a third
party, with a two-year lease-back of approximately 25,000 square feet of the
62,000 square foot facility. Our net sale proceeds were approximately $7.7
million of which approximately $3.6 million was repaid to our mortgage holder,
eliminating the mortgage debt from our balance sheet. Our lease expires in
December 2008. A renewal of our current lease may require an increase in our
monthly rent. We may reduce the space leased in our current location or move
our
headquarters to a new location based on our needs and rental costs. In the
event
the lease for our current space is not further extended, we believe we will
be
able to find alternative space that is suitable and adequate for our
headquarters operation.
For
many
years we derived a majority of our net sales from the retail after-market sale
of dial-up modems to customers seeking to add or upgrade a modem for their
personal computers. In recent years the size of this market and our sales to
this market have declined, as personal computer manufacturers have incorporated
a modem as a built-in component in most consumer personal computers and as
increasing numbers of consumers world-wide have switched to broadband Internet
access. The consensus of communications industry analysts is that after-market
sales of dial-up modems will probably continue to decline. There is also
consensus among industry analysts that the installed base for broadband Internet
connection devices, such as cable modems and DSL modems, will grow rapidly
during the decade. In response to increased and forecasted worldwide demand
for
faster connection speeds and increased modem functionality, we have invested
and
continue to invest resources to advance our product line of broadband modems,
both DSL modems and cable modems.
We
continually seek to improve our product designs and manufacturing approach
in
order to improve product performance and reduce our costs. We pursue a strategy
of outsourcing rather than internally developing our modem chipsets, which
are
application-specific integrated circuits that form the technology base for
our
modems. By outsourcing the chipset technology, we are able to concentrate our
research and development resources on modem system design, leverage the
extensive research and development capabilities of our chipset suppliers, and
reduce our development time and associated costs and risks. As a result of
this
approach, we are able to quickly develop new products while maintaining a
relatively low level of research and development expense as a percentage of
net
sales. We also outsource aspects of our manufacturing to contract manufacturers
as a means of reducing our costs of production, and to provide us with greater
flexibility in our production capacity.
Over
the
past several years our net sales have declined. In response to declining sales
volume, we have cut costs by reducing staffing and some overhead costs. Our
total headcount of full-time employees, including temporary workers, went from
68 on June 30, 2007 to 63 on June 30, 2008. Our dedicated manufacturing
personnel in Mexico are employees of our Mexican manufacturing service provider
and not included in our 2008 or 2007 headcount. Of Zoom’s 63 employees on June
30, 2008, 13 were engaged in research and development, 17 were involved in
manufacturing management, purchasing, assembly, packaging, shipping and quality
control, 22 were engaged in sales, marketing and technical support, and the
remaining 11 performed accounting, administrative, management information
systems, and executive functions.
Generally
our gross margin for a given product depends on a number of factors including
the type of customer to whom we are selling. The gross margin for retailers
tends to be higher than for some of our other customers; but the sales, support,
returns, and overhead costs associated with retailers also tend to be higher.
Zoom’s sales to certain countries are currently handled by a single master
distributor for each country who handles the support and marketing costs within
the country. Gross margin for sales to these master distributors tends to be
low, since lower pricing to these distributors helps them to cover the support
and marketing costs for their country.
In
the
second quarter of 2008 our net sales were down 6.5% compared to the second
quarter of 2007. The sales decrease resulted from declines in DSL and dial-up
modem sales, partially offset by increased sales of our wireless and cable
modem
products. The majority of the decline in DSL modem sales in the second quarter
of 2008 compared to the second quarter of 2007 was due to lower sales at our
largest UK retailer. The decline in dial-up modem sales was primarily the result
of the continued decline of the dial-up modem after-market. Recently we opened
new accounts and made initial shipments to Wal-Mart, Tesco, Costco UK, and
Brightstar. Because of our significant customer concentration our net sales
and
operating results have fluctuated and in the future could continue to fluctuate
significantly due to changes in political or economic conditions or the loss,
reduction of business, or less favorable terms for any of our significant
customers.
During
the quarter ended September 30, 2007 we purchased all the Series A Preferred
Shares (the Series A Shares) of Unity Business Networks, LLC (Unity) for cash
of
$1.2 million, including transaction costs. The Series A Shares are convertible
at any time at our option into 15% of Unity’s common stock on a fully-diluted
basis. The Series A Shares convert automatically if Unity consummates a public
offering with gross proceeds in excess of $25 million or 30 days after Unity
delivers its 2009 audited financial statements to the Company. In addition,
we
have an option to purchase all the outstanding common stock of Unity based
on a
specified multiple of Unity’s revenues, as defined, for 2008.
On
January 22, 2008, Zoom and RedMoon, Inc., a provider of wireless networks
headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
Purchase Agreement pursuant to which we made an initial investment of $300,000
in 6% convertible notes (the “Notes”) and agreed to purchase an additional
$50,000 per month of 6% convertible notes beginning on May 1, 2008 and
continuing until the earlier of (i) the Company’s election to exercise the
option to purchase all outstanding stock of RedMoon contained in the Option
Agreement described in Note 8 to the accompanying financial statements or (ii)
the Company’s election to terminate such Option Agreement, up to a maximum total
investment of $500,000 On April 30, 2008 the Company notified RedMoon of the
Company’s decision not to invest $50,000 on May 1, 2008 due to the lack of
required information. The Company expects that the option will not be exercised
and will terminate in accordance with its terms on August 31, 2008.
Our
cash
and cash equivalents balance at June 30, 2008 was $3.0 million, down from $3.6
million at December 31, 2007. The cash decline over the first six months of
2008
was due primarily to our $1.8 million loss, our $0.3 million reduction in
accounts payable and accrued expense, and our $0.3 million investment in
RedMoon, partially offset by our $1.3 million reduction of inventory and our
$0.4 reduction in accounts receivable.
On
June
26, 2008, the stockholders of the Company approved a reverse stock split within
the range of one-for-two and one-for-nine. On July 29, 2008, the Board of
Directors approved a one-for-five reverse stock split which became effective
on
August 7, 2008. All common stock information presented herein has been
retroactively restated to reflect the reverse stock split.
Critical
Accounting Policies and Estimates
Following
is a discussion of what we view as our more significant accounting policies
and
estimates. As described below, management judgments and estimates must be made
and used in connection with the preparation of our consolidated financial
statements. We have identified areas where material differences could result
in
the amount and timing of our net sales, costs, and expenses for any period
if we
had made different judgments or used different estimates.
Revenue
(Net Sales) Recognition.
We
primarily sell hardware products to our customers. The hardware products include
dial-up modems, DSL modems, cable modems, voice over IP products, and wireless
and wired networking equipment. We earn a small amount of royalty revenue that
is included in our net sales, primarily from internet service providers. We
generally do not sell software. We began selling services in 2004. We introduced
our Global Village VoIP service in late 2004, but sales of those services to
date have not been material.
We
derive
our net sales primarily from the sales of hardware products to four types of
customers:
·
|
computer
peripherals retailers,
|
·
|
computer
product distributors,
|
·
|
Internet
service providers, and
|
·
|
original
equipment manufacturers (OEMs)
|
We
recognize hardware net sales for our customers at the point when the customers
take legal ownership of the delivered products. Legal ownership passes from
Zoom
to the customer based on the contractual FOB point specified in signed contracts
and purchase orders, which are both used extensively. Many of our customer
contracts or purchase orders specify FOB destination. We verify the delivery
date on all significant FOB destination shipments made during the last 10
business days of each quarter.
Our
net
sales of hardware include reductions resulting from certain events which are
characteristic of the sales of hardware to retailers of computer peripherals.
These events are product returns, certain sales and marketing incentives, price
protection refunds, and consumer mail-in and in-store rebates. Each of these
is
accounted for as a reduction of net sales based on detailed management
estimates, which are reconciled to actual customer or end-consumer credits
on a
monthly or quarterly basis.
Our
second quarter 2008 VoIP service revenues were recorded as the end-user-customer
consumed billable VoIP services. The end-user-customer became a service customer
by electing to sign up for the Global Village billable service on the Internet.
Zoom recorded revenue either when billable services were consumed or when a
monthly flat-fee service was billed.
Product
Returns. Products
are returned by retail stores and distributors for inventory balancing,
contractual stock rotation privileges, and warranty repair or replacements.
We
estimate the sales and cost value of expected future product returns of
previously sold products. Our estimates for product returns are based on recent
historical trends plus estimates for returns prompted by, among other things,
announced stock rotations and announced customer store closings. Management
reviews historical returns, current economic trends, and changes in customer
demand and acceptance of our products when estimating sales return allowances.
The estimate for future returns is recorded as a reserve against accounts
receivable, a reduction in our net sales, and the corresponding change to
inventory reserves and cost of sales. The relationship of quarterly physical
product returns to quarterly product sales remained relatively stable for many
years. Product returns as a percentage of net sales were 10.9% in the second
quarter of 2008.
Price
Protection Refunds.
We have
a policy of offering price protection to certain of our retailer and distributor
customers for some or all their inventory. Under the price protection policies,
when we reduce our prices for a product, the customer receives a credit for
the
difference between the original purchase price and our reduced price for their
unsold inventory of that product. Our estimates for price protection refunds
are
based on a detailed understanding and tracking by customer and by sales program.
Estimated price protection refunds are recorded in the same period as the
announcement of a pricing change. Information from customer inventory-on-hand
reports or from direct communications with the customers is used to estimate
the
refund, which is recorded as a reduction of net sales and a reserve against
accounts receivable. Reductions in our net sales due to price protection were
$0.1 million in 2006 and $0.1 million in 2007. In the second quarter of 2008
the
reduction in net sales due to price protection was $0.005 million compared
to
$0.03 million in the second quarter of 2007.
Sales
and Marketing Incentives. Many
of
our retailer customers require sales and marketing support funding, usually
set
as a percentage of our sales in their stores. The incentives are reported as
reductions in our net sales and were $0.8 million in 2006 and $1.2 million
in
2007. In the second quarter of 2008, the reduction in our net sales due to
sales
and marketing incentives was $0.2 million compared to $0.3 million in the second
quarter of 2007.
Consumer
Mail-In and In-Store Rebates.
Our
estimates for consumer mail-in and in-store rebates are based on a detailed
understanding and tracking by customer and sales program, supported by actual
rebate claims processed by the rebate redemption centers plus an accrual for
an
estimated lag in processing at the redemption centers. The estimate for mail-in
and in-store rebates is recorded as a reserve against accounts receivable and
a
reduction of net sales in the same period that the rebate obligation was
triggered. Reductions in our net sales due to the consumer rebates were $0.7
million in 2006 and $0.3 million in 2007. In the second quarter of 2008, the
reduction in our net sales due to consumer mail-in rebates and in-store rebates
was $0.004 million compared to $0.05 million in the second quarter of
2007.
To
ensure
that the sales, discounts, and marketing incentives are recorded in the proper
period, we perform extensive tracking and documenting by customer, by period,
and by type of marketing event. This tracking includes reconciliation to the
accounts receivable records for deductions taken by our customers for these
discounts and incentives.
Accounts
Receivable Valuation.
We
establish accounts receivable valuation allowances equal to the above-discussed
net sales adjustments for estimates of product returns, price protection
refunds, consumer rebates, and general bad debt reserves. These allowances
are
reduced as actual credits are issued to the customer's accounts. Our bad-debt
write-offs were approximately $0.1 million for 2007 and approximately $0.0
million for 2006. Our bad-debt write-offs were not significant in the second
quarter of 2008 or 2007.
Inventory
Valuation and Cost of Goods Sold.
Inventory is valued at the lower of cost, determined by the first-in, first-out
method, or market. We review inventories for obsolete slow moving products
each
quarter and make provisions based on our estimate of the probability that the
material will not be consumed or that it will be sold below cost. We did not
have significant charges to costs and expenses for obsolete or slow-moving
products in the second quarter of 2008 or 2007.
Valuation
and Impairment of Deferred Tax Assets. As
part
of the process of preparing our consolidated financial statements we estimate
our income tax expense and deferred income tax position. This process involves
the estimation of our actual current tax exposure together with assessing
temporary differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included in our consolidated balance sheet. We then
assess the likelihood that our deferred tax assets will be recovered from future
taxable income. To the extent we believe that recovery is not likely, we
establish a valuation allowance. Changes in the valuation allowance are
reflected in the statement of operations.
Significant
management judgment is required in determining our provision for income taxes
and any valuation allowances. We have recorded a 100% valuation allowance
against our deferred income tax assets. It is management's estimate that, after
considering all of the available objective evidence, historical and prospective,
with greater weight given to historical evidence, it is more likely than not
that these assets will not be realized. If we establish a record of continuing
profitability, at some point we will be required to reduce the valuation
allowance and recognize an equal income tax benefit which will increase net
income in that period(s).
As
of
December 31, 2007 we had federal net operating loss carry forwards of
approximately $36,777,000. These federal net operating losses are available
to
offset future taxable income, and are due to expire in years ranging from
2018 to 2027. We also had state net operating loss carry forwards of
approximately $11,447,000. These state net operating losses are available to
offset future taxable income, and are primarily due to expire in years ranging
from 2008 to 2012.
Valuation
of Investment in Affiliates. During
the quarter ended September 30, 2007 the Company purchased all the Series A
Preferred Shares (the Series A Shares) of Unity Business Networks, LLC (Unity)
for cash of $1.2 million, including transaction costs. The Series A Shares
are
convertible at any time at the Company’s option into 15% of Unity’s common stock
on a fully-diluted basis. The Series A Shares convert automatically if Unity
consummates a public offering with gross proceeds in excess of $25 million
or 30
days after Unity delivers its 2009 audited financial statements to the Company.
In addition, the Company has an option to purchase all the outstanding common
stock of Unity based on a specified multiple of Unity’s revenues, as defined,
for 2008. The option is exercisable for 30 days following the receipt of Unity’s
2008 audited financial statements. The Company’s CEO is a member of Unity’s five
member board of directors. Further, the Company is entitled to vote Series
A
Shares on an as-converted basis with Unity’s common stock. The Company is unable
to exercise significant influence over Unity’s policies or operations.
On
January 22, 2008, the Company and RedMoon, Inc., a provider of wireless networks
headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
Purchase Agreement pursuant to which the Company made an initial investment
of
$300,000 in 6% convertible notes (the “Notes”) and agreed to purchase an
additional $50,000 per month of 6% convertible notes beginning on May 1, 2008
and continuing until the earlier of (i) the Company’s election to exercise the
option to purchase all outstanding stock of RedMoon contained in the Option
Agreement described below or (ii) the Company’s election to terminate such
Option Agreement, up to a maximum total investment of $500,000 On
April
30, 2008 the Company notified RedMoon of the Company’s decision not to invest
$50,000 on May 1, 2008 due to the lack of required information. The Company
expects that the option will not be exercised and will terminate in accordance
with its terms on August 31, 2008.
As
of
January 22, 2008, the Company and RedMoon entered into a Security Agreement
granting the Company a security interest in certain equipment of RedMoon, and
the Company, RedMoon, and certain of RedMoon’s stockholders entered into a
Voting Agreement whereby the Company and certain stockholders of RedMoon agreed
to elect Frank Manning, Chief Executive Officer.
The
Company accounts for its investments in Unity and RedMoon at cost. The
investments will be reviewed periodically for potential impairment.
Results
of Operations
Summary.
Net
sales were $4.1 million for our second quarter ended June 30, 2008, down 6.5%
from $4.3 million in the second quarter of 2007. We had a net loss of $0.83
million for the second quarter of 2008, compared to a net loss of $1.34 million
in the second quarter of 2007. Loss per diluted share was $0.45 in the second
quarter of 2008 compared to $0.72 for the second quarter of 2007. Net sales
were
$7.6 million for the first six month ended June 30, 2008, down 16.0% from $9.1
million in the first six months ended June 30, 2007. We had a net loss of $1.8
million for the first six months ended June 30, 2008 compared to a net loss
of
$2.1 million for the first six months ended June 30, 2007. Loss per diluted
share was $0.94 in the first six months ended June 30, 2008 compared to $1.12
for first six months ended June 30, 2007.
Net
Sales. Our
total
net sales for the second quarter of 2008 decreased $0.3 million or 6.5% from
the
second quarter of 2007, primarily due to decreases in DSL and dial-up modem
sales, partially offset by an increase in wireless product sales. The decline
in
dial-up modem sales was primarily the result of the continued decline of the
dial-up modem after-market. The majority of the decline in DSL modem sales
in
the second quarter of 2008 compared to the second quarter of 2007 was due to
lower sales at our largest UK retailer. Dial-up modem net sales declined from
$1.8 million in the second quarter of 2007 to $1.4 million in the second quarter
of 2008. Cable modem sales were unchanged at $0.4 million in the second quarter
of 2007 and the second quarter of 2008. Wireless product sales, not counting
sales of DSL gateways with integrated wireless, increased from $0.1 million
in
the second quarter of 2007 to $0.8 million in the second quarter of 2008.
Our
net
sales for the first six months of 2008 decreased 16.0% from the first six months
of 2007, primarily due to sales declines for DSL and dial-up modem sales. The
decline in modem sales was primarily for the reasons cited above and due to
production delays in the fourth quarter of 2006 which further resulted in a
significant opening order backlog and resulting higher shipments in the first
quarter of 2007. The production delays were the result of late 2006 transition
difficulties from closing our Boston manufacturing facility and opening our
Mexican maquiladora manufacturing operation.
Our
net
sales in North America increased from $2.6 million in the second quarter of
2007
to $2.7 million in the second quarter of 2008. Our net sales outside North
America declined from $1.7 million in the second quarter of 2007 to $1.3 million
in the second quarter of 2008. The decline in sales outside North America was
primarily in Spain, the U.K., and Turkey.
Our
net
sales in North America were $5.1 million in the first six months of 2008, a
decrease from $6.1 million in the first six months of 2007. Our net sales in
the
U.K. were $1.7 million in both the first six months of 2008 and 2007. Our net
sales in countries outside North America and the U.K. were $0.8 million for
the
first six months of 2008 and $1.3 million for the first six months of 2007.
The
decline in sales outside North America was primarily in Vietnam, Israel, and
Spain.
In
the
quarter ended June 30, 2008 three customers accounted for 39% of total net
sales. Because of our significant customer concentration, our net sales and
operating income has fluctuated and could in the future fluctuate significantly
due to changes in political or economic conditions or the loss, reduction of
business, or less favorable terms for any of our significant customers. For
the
first six months of 2007 and 2008, our net sales to our top three customer
accounted for 38% of our net sales. Because of our significant customer
concentration, our net sales and operating income has fluctuated and could
in
the future fluctuate significantly due to changes in political or economic
conditions or the loss, reduction of business, or less favorable terms for
any
of our significant customers.
Gross
Profit. Our
total
gross profit was $0.9 million in the second quarter of 2008, an increase from
$0.5 million in the second quarter of 2007. Gross margin as a percent of net
sales was 22.6% in the second quarter of 2008 compared to 10.8% in the second
quarter of 2007. The gross margin percentage was higher in the second quarter
of
2008 compared to the second quarter of 2007 primarily due to reduced retail
rebates and discounts, reduced manufacturing expense, and reserve adjustments
for future product returns.
Our
total
gross profit was $1.6 million in both the first six months of 2008 and the
first
six months of 2007. Gross margin as a percent of net sales increased to 21.5%
in
the first six months of 2008 from 17.5% in the first six months of 2007. The
gross margin percentage was higher in the first six months of 2008 primarily
because of reduced retail rebates and discounts, reduced manufacturing expense,
and reserve adjustments for future product returns.
Selling
Expense.
Selling
expense was $0.8 million or 20.2% of net sales in the second quarter of 2008
compared to $0.9 million or 20.2% of net sales in the second quarter of 2007.
Product delivery cost, marketing and advertising expense, rent, and telephone
expense were lower in the second quarter of 2008 compared to the second quarter
of 2007. Selling expense was $1.6 million for the first six months of 2008
and
$1.8 million for the first six months of 2007. Selling expense as a percentage
of net sales was 20.4% in the first six months of 2008 and 19.5% of net sales
in
the first six months of 2007. Product delivery cost, marketing and advertising
expense, rent, telephone expense, and commissions were lower in the first six
months of 2008 compared to the first six months of 2007.
General
and Administrative Expense.
General
and administrative expense was $0.6 million or 14.5% of net sales in the second
quarter of 2008 and $0.6 million or 14.0% of net sales in the second quarter
of
2007. General and administrative expense was $1.1 million or 14.9% of net sales
in the first six months of 2008 compared to $1.2 million or 13.7% of net sales
in the first six months of 2007. The reduction was primarily the result of
reduced personnel, legal, and audit expense.
Research
and Development Expense.
Research
and development expense was $0.4 million or 10.7% of net sales in the second
quarter of 2008 and $0.5 million or 11.3% of net sales in the second quarter
of
2007. Development and support continues on all of our major product lines.
Research and development expense was $0.9 million or 11.8% of net sales in
the
first six months of 2008 compared to $1.0 million or 10.8% of net sales in
the
first six months of 2007. Research and development costs decreased primarily
as
a result of lower personnel costs due to headcount reductions.
Gain
on Sale of Real Estate. A
gain on
sale of real estate of $0.096 million was recorded in the second quarters of
2008 and 2007. In December 2006 Zoom sold its headquarters building in Boston
and agreed to lease-back some of the office space. The lease-back arrangement
resulted in an accounting deferral of $0.725 million of the gain. This deferred
gain is being recorded over the subsequent eight quarters at $0.096 million
per
quarter for seven quarters and $0.053 million in the eighth quarter, which
will
be the fourth quarter of 2008.
Other
Income. Other
income was approximately $0.0 million in the second quarter of 2008 and $0.07
million in the second quarter of 2007. Total other income (expense), net was
income, net of $0.01 million in the first six months of 2008 compared to $0.1
million in the first six months of 2007. The income reduction was primarily
from
reduced interest income due to a decrease in cash on hand and changes in
interest rates in both the second quarter and the first six months of 2008
as
compared to 2007.
Income
Tax Expense (Benefit). We
did
not record any tax expense in the second quarter of 2008 or the second quarter
of 2007. The net deferred tax asset balance at June 30, 2008 was zero.
Liquidity
and Capital Resources
On
June
30, 2008, we had working capital of $5.8 million, including $3.0 million in
cash
and cash equivalents. We had a $0.7 million reduction in cash and cash
equivalents in the first six months of 2008. Operating activities used $0.3
million in cash, as follows: a net loss of $1.8 million, a decrease of accounts
payable and accrued expense of $0.3 million, and an adjustment for a gain on
sales of real estate for $0.2 million, partially offset by a decrease of
inventory of $1.3 million and a decrease in accounts receivable of $0.4 million.
Investing activities used $0.3 million in cash for the RedMoon investment
described above.
To
conserve cash and manage our liquidity, we continue to implement cost cutting
initiatives including the reduction of employee headcount and overhead costs.
Our employee headcount was 68 at June 30, 2007 and was reduced to 63 at June
30,
2008. We have 29 dedicated manufacturing personnel in Mexico employed by a
manufacturing service provider and they are not counted as Zoom employees.
At
June 30, 2007 we had 36 dedicated manufacturing personnel in Mexico. We plan
to
continue to assess our cost structure as it relates to our revenues and cash
position in 2008, and we may make further reductions if the actions are deemed
necessary.
During
the quarter ended September 30, 2007 we purchased all the Series A Preferred
Shares (the Series A Shares) of Unity Business Networks, LLC (Unity) for cash
of
$1.2 million, including transaction costs. The Series A Shares are convertible
at any time at our option into 15% of Unity’s common stock on a fully-diluted
basis. The Series A Shares convert automatically if Unity consummates a public
offering with gross proceeds in excess of $25 million or 30 days after Unity
delivers its 2009 audited financial statements to the Company. In addition,
we
have an option to purchase all the outstanding common stock of Unity based
on a
specified multiple of Unity’s revenues, as defined, for 2008.
On
January 22, 2008, Zoom and RedMoon, Inc., a provider of wireless networks
headquartered in Plano, Texas (“RedMoon”), entered into a Convertible Note
Purchase Agreement pursuant to which we made an initial investment of $300,000
in 6% convertible notes (the “Notes”) and agreed to purchase an additional
$50,000 per month of 6% convertible notes beginning on May 1, 2008 and
continuing until the earlier of (i) the Company’s election to exercise the
option to purchase all outstanding stock of RedMoon contained in the Option
Agreement or (ii) the Company’s election to terminate such Option Agreement, up
to a maximum total investment of $500,000. On the same date, Zoom and RedMoon
and the holders of RedMoon’s outstanding capital stock entered into an Option
Agreement pursuant to which Zoom has the right to buy the balance of RedMoon
any time prior to the close of business on August 31, 2008, unless the we elect
to terminate the Option Agreement prior to that date. On
April
30, 2008 the Company notified RedMoon of the Company’s decision not to invest
$50,000 on May 1, 2008 due to the lack of required information. The Company
expects that the option will not be exercised and will terminate in accordance
with its terms on August 31, 2008.
Management
believes it has sufficient resources to fund its planned operations through
at
least June 30, 2009. However, if we are unable to increase our revenues, reduce
or otherwise adequately control our expenses, or raise capital, our longer-term
ability to continue as a going concern and achieve our intended business
objectives could be adversely affected. See the safe harbor statement contained
herein and the "Risk Factors" under Item IA of Part II of this Quarterly Report
on Form 10-Q below, in Zoom’s Annual Report on Form 10-K for the year ended
December 31, 2007 and in Zoom’s other filings with the Securities and Exchange
Commission, for further information with respect to events and uncertainties
that could harm our business, operating results, and financial
condition.
Commitments
During
the three and six months ended June 30, 2008 there were no material changes
to
our capital commitments and contractual obligations from those disclosed in
our
Form 10-K for the year ended December 31, 2007.
"Safe
Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
Some
of the statements contained in this report are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the
Securities Exchange Act of 1934. These statements involve known and unknown
risks, uncertainties and other factors which may cause our or our industry's
actual results, performance or achievements to be materially different from
any
future results, performance or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to statements regarding: Zoom's plans, expectations and intentions,
including statements relating to Zoom's prospects and plans relating to sales
of
and markets for its products; Zoom’s expected benefits and cost savings
resulting from the move of its manufacturing facilities to Mexico; and Zoom's
financial condition or results of operations.
In
some cases, you can identify forward-looking statements by terms such as "may,"
"will, " "should," "could," "would," "expects," "plans," "anticipates,"
"believes," "estimates," "projects," "predicts," "potential" and similar
expressions intended to identify forward-looking statements. These statements
are only predictions and involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by such
forward-looking statements. Given these uncertainties you should not place
undue
reliance on these forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this
report. We expressly disclaim any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained in this
report to reflect any change in our expectations or any change in events,
conditions or circumstances on which any of our forward-looking statements
are
based. Factors that could cause or contribute to differences in our future
financial results include those discussed in the risk factors set forth in
Item
1A of Part II below as well as those discussed elsewhere in this report and
in
our filings with the Securities and Exchange Commission. We qualify all of
our
forward-looking statements by these cautionary statements.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
Required.
ITEM
4. CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports
is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As
of
June 30, 2008 we carried out an evaluation, under the supervision and with
the
participation of our management, including our Chief Executive Officer and
Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934. Based upon that evaluation, our
Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in enabling us to record, process,
summarize and report information required to be included in our periodic filings
with the Securities and Exchange Commission within the required time
period.
There
have been no changes in our internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART
II OTHER
INFORMATION
ITEM
1A. RISK
FACTORS
This
report contains forward-looking statements that involve risks and uncertainties,
such as statements of our objectives, expectations and intentions. The
cautionary statements made in this report are applicable to all forward-looking
statements wherever they appear in this report. Our actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include those discussed below, as well as those discussed
elsewhere in this report.
To
stay in business we may require future additional funding, which we may be
unable to obtain on favorable terms, if at all.
Over
the
next twelve months we may require additional financing for our operations either
to fund losses beyond those we anticipate or to fund growth in our inventory
and
accounts receivable. Our revolving credit facility expired on March 15, 2006
and
we currently have no line of credit from which we can borrow. Additional
financing may not be available to us on a timely basis if at all, or on terms
acceptable to us. If we fail to obtain acceptable additional financing when
needed, we may not have sufficient resources to fund our normal operations
and
we may be required to further reduce planned expenditures or forego business
opportunities. These factors could reduce our net sales, increase our losses,
and harm our business. Moreover, additional equity financing could dilute the
per share value of our common stock held by current shareholders, while
additional debt financing could restrict our ability to make capital
expenditures or incur additional indebtedness, all of which would impede our
ability to succeed.
The
market for high-speed communications products and services has many competing
technologies and, as a result, the demand for certain of our products and
services is declining.
Industry
analysts believe that the market for our dial-up modems will continue to
decline. If we are unable to increase demand for and sales of our broadband
modems, we may be unable to sustain or grow our business. The market for
high-speed communications products and services has a number of competing
technologies. For instance, Internet access can be achieved by using a standard
telephone line and appropriate service for dial-up modems; DSL modems;
using a cable modem with a cable TV line and cable modem service;
using a router and some type of modem to service the computers connected
to a local area network; or other approaches, including wireless links to the
Internet.
Although
we currently sell products that include these technologies, our most successful
products have historically been our dial-up modems. The introduction of new
products by competitors, market acceptance of competing products based on new
or
alternative technologies, or the emergence of new industry standards have in
the
past rendered and could continue to render our products less competitive or
even
obsolete. For example, these factors have caused the market for our dial-up
modems to shrink dramatically. If we are unable to increase demand for our
broadband modems, we may be unable to sustain or grow our
business.
We
may not be able to maintain our listing on the Nasdaq Capital Market if we
are
unable to satisfy the minimum bid price requirements.
On
November 16, 2007 the Nasdaq Stock Market notified us that we were no longer
in
compliance with Marketplace Rule 4310(c)(4) because our common stock traded
below $1.00 per share for 30 days. We were provided until May 14, 2008 to regain
compliance by trading at $1.00 or more for 10 straight trading days. We did
not
demonstrate compliance with Rule 4310(c)(4) by May 14, 2008, and we received
a
written delisting notice on May 15, 2008. We appealed the determination to
delist our securities to the Listing Qualifications Panel. Our basis for appeal
was our plan to effect a reverse split of our common stock, and the Listing
Qualifications Panel agreed with this plan. On August 7, 2008 we effected a
one-for-five reverse stock split. We expect that the reverse stock split will
result in an increase of the trading price of our common stock above the minimum
bid price of $1.00 per share, but there can be no assurance that a trading
price
above
$1.00 per share
will be
sustained. If the trading price of our common stock exceeds Nasdaq’s minimum bid
price for ten consecutive trading days, we believe that it is likely, but not
certain, that Nasdaq will rescind their delisting notice. A delisting of our
shares, if it occurs, could have a negative effect on the market price for
our
shares.
Our
reliance on a limited number of customers for a large portion of our revenues
could materially harm our business and prospects.
Relatively
few customers have accounted for a substantial portion of our net sales. In
2007, our net sales to three companies constituted 44% of our total net sales.
In the second quarter of 2008 our net sales to three customers comprised 39%
of
our net sales. Our customers generally do not enter into long-term agreements
obligating them to purchase our products. We may not continue to receive
significant revenues from any of these or from other large customers. Because
of
our significant customer concentration, our net sales and operating income
could
fluctuate significantly due to changes in political or economic conditions
or
the loss of, reduction of business with, or less favorable terms for any of
our
significant customers. A reduction or delay in orders from any of our
significant customers, or a delay or default in payment by any significant
customer could materially harm our business, results of operation and liquidity.
Our
reliance on a single manufacturer for a substantial percentage of our products
could have an adverse effect on our business.
We
currently rely on a single manufacturer to manufacture a substantial portion
of
our products. The loss of the services of this manufacturer or an adverse change
in the manufacturer’s business or our relationship could have a material adverse
effect on our ability to manufacture our products and on our
business.
Capacity
constraints in our Mexican operations could reduce our sales and revenues and
hurt customer relationships.
We
now
rely on our Mexican operations to finish and ship most of the products we sell.
Since moving our manufacturing operations to our Mexican facility we have
experienced and may continue to experience constraints on our manufacturing
capacity as we address challenges related to operating our new facility, such
as
hiring and training workers, creating the facility’s infrastructure, developing
new supplier relationships, complying with customs and border regulations,
and
resolving shipping and logistical issues. Our sales and revenues may be reduced
and our customer relationships may be impaired if we continue to experience
constraints on our manufacturing capacity. We are working to minimize capacity
constraints in a cost-effective manner, but there can be no assurance that
we
will be able to adequately minimize capacity constraints.
Our
reliance on a business processing outsourcing partner to conduct our operations
in Mexico could materially harm our business and
prospects.
In
connection with the move of most of our North American manufacturing operations
to Mexico, we rely on a business processing outsourcing partner to hire, subject
to our oversight, the production team for our manufacturing operation, provide
the selected facility described above, and coordinate many of the ongoing
manufacturing logistics relating to our operations in Mexico. Our outsourcing
partner’s related functions include acquiring the necessary Mexican permits,
providing the appropriate Mexican operating entity, assisting in customs
clearances, and providing other general assistance and administrative services
in connection with the ongoing operation of the Mexican facility. Our
outsourcing partner’s performance of these obligations efficiently and
effectively is critical to the success of our operations in Mexico. Failure
of
our outsourcing partner to perform its obligations efficiently and effectively
could result in delays, unanticipated costs or interruptions in production,
delays in deliveries to our customers or other harm to our business, results
of
operation, and liquidity. Moreover, if our outsourcing arrangement is not
successful, we cannot assure our ability to find an alternative production
facility or outsourcing partner to assist in our operations in Mexico or our
ability to operate successfully in Mexico without outsourcing or similar
assistance.
Our
net sales, operating results and liquidity have been and may in the future
be
adversely affected because of the decline in the retail market for dial-up
modems.
The
dial-up modem industry has been characterized by declining average selling
prices and a declining retail market. The decline in average selling prices
is
due to a number of factors, including technological change, lower component
costs, and competition. The decline in the size of the retail market for dial-up
modems is primarily due to the inclusion of dial-up modems as a standard feature
contained in new PCs, and the advent of broadband products. Decreasing average
selling prices and reduced demand for our dial-up modems have resulted and
are
likely to continue to result in decreased net sales for dial-up modems. If
we
fail to replace declining revenue from the sales of dial-up modems with the
sales of our other products, including our broadband modems, our business,
results of operation and liquidity will be harmed.
Less
advantageous terms of sale of our products could harm our
business.
We
entered into a consignment arrangement with a significant retailer customer
in
October 2006. In connection with this arrangement ownership of all unsold
products previously purchased from Zoom reverted to us in November 2006. Under
the consignment arrangement we do not recognize revenue from the sale of a
product until the retailer actually sells such product to its customer. The
consignment arrangement also results in a delay in the dating of invoices,
the
recognition of accounts receivable, and the due dates for payment by the
retailer for goods sold. If additional significant customers adopt similar
arrangements or otherwise change the terms of sale, our business, results of
operation and liquidity will be harmed.
We
believe that our future success will depend in large part on our ability to
more
successfully penetrate the broadband modem markets, which have been challenging
markets, with significant barriers to entry.
With
the
shrinking of the dial-up modem market, we believe that our future success will
depend in large part on our ability to more successfully penetrate the broadband
modem markets, DSL and cable, and the VoIP market. These markets have
significant barriers to entry that have adversely affected our sales to these
markets. Although some cable and DSL modems are sold at retail, the high volume
purchasers of these modems are concentrated in a relatively few large cable,
telecommunications, and Internet service providers which offer broadband modem
services to their customers. These customers, particularly cable services
providers, also have extensive and varied approval processes for modems to
be
approved for use on their network. These approvals are expensive, time
consuming, and continue to evolve. Successfully penetrating the broadband modem
market therefore presents a number of challenges including: the current limited
retail market for broadband modems; the relatively small number of cable,
telecommunications and Internet service provider customers that make up the
bulk
of the market for broadband modems in certain countries, including the United
States; the significant bargaining power of these large volume purchasers;
the
time consuming, expensive, uncertain and varied approval process of the various
cable service providers; and the strong relationships with cable service
providers enjoyed by incumbent cable equipment providers like Motorola and
Cisco.
Our
sales
of broadband products have been adversely affected by all of these factors.
Sales of our broadband products in European countries have fluctuated and may
continue to fluctuate due to approvals and delays in the deployment by service
providers of cable and DSL service in these countries. We cannot predict whether
we will be able to successfully penetrate these markets.
Our
failure to meet changing customer requirements and emerging industry standards
would adversely impact our ability to sell our products and
services.
The
market for PC communications products and high-speed broadband access products
and services is characterized by aggressive pricing practices, continually
changing customer demand patterns, rapid technological advances, emerging
industry standards and short product life cycles. Some of our product and
service developments and enhancements have taken longer than planned and have
delayed the availability of our products and services, which adversely affected
our sales and profitability in the past. Any significant delays in the future
may adversely impact our ability to sell our products and services, and our
results of operations and financial condition may be adversely affected. Our
future success will depend in large part upon our ability to: identify and
respond to emerging technological trends and industry standards in the market;
develop and maintain competitive products that meet changing customer demands;
enhance our products by adding innovative features that differentiate our
products from those of our competitors; bring products to market on a timely
basis; introduce products that have competitive prices; manage our product
transitions, inventory levels and manufacturing processes efficiently; respond
effectively to new technological changes or new product announcements by others;
and meet changing industry standards.
Our
product cycles tend to be short, and we may incur significant non-recoverable
expenses or devote significant resources to sales that do not occur when
anticipated. Therefore, the resources we devote to product development, sales
and marketing may not generate material net sales for us. In addition, short
product cycles have resulted in and may in the future result in excess and
obsolete inventory, which has had and may in the future have an adverse affect
on our results of operations. In an effort to develop innovative products and
technology, we have incurred and may in the future incur substantial
development, sales, marketing, and inventory costs. If we are unable to recover
these costs, our financial condition and operating results could be adversely
affected. In addition, if we sell our products at reduced prices in anticipation
of cost reductions and we still have higher cost products in inventory, our
business would be harmed and our results of operations and financial condition
would be adversely affected.
Our
international operations are subject to a number of risks that could harm our
business.
Currently
our business is significantly dependent on our operations outside the United
States, particularly sales of our products and the production of most of our
products. All of our manufacturing operations except our rework operations
are
now located outside of the United States. In the second quarter of 2007, sales
outside North America were 39% of our net sales. In the second quarter of 2008,
sales outside North America were 33% of our net sales. The inherent risks of
international operations could harm our business, results of operation, and
liquidity. Specifically, our manufacturing operations in Mexico are subject
to
the challenges and risks associated with international operations, including
those related to integration of operations across different cultures and
languages, currency risk, and economic, legal, political and regulatory risks.
The types of risks faced in connection with international operations and sales
include, among others: regulatory and communications requirements and policy
changes; favoritism toward local suppliers; delays in the rollout of
broadband services by cable and DSL service providers outside of the United
States; local language and technical support requirements; difficulties in
inventory management, accounts receivable collection and the management of
distributors or representatives; cultural differences; reduced control over
staff and other difficulties in staffing and managing foreign operations;
reduced protection for intellectual property rights in some countries;
political and economic changes and disruptions; governmental currency controls;
shipping costs; and currency exchange rate fluctuations, including, as a result
of the move of our manufacturing operations to Mexico, changes in value of
the
Mexican Peso relative to the US dollar; and import, export, and tariff
regulations.
We
may be subject to product returns resulting from defects, or from overstocking
of our products. Product returns could result in the failure to attain market
acceptance of our products, which would harm our business.
If
our
products contain undetected defects, errors, or failures, we could
face: delays in the development of our products; numerous product returns;
and other losses to us or to our customers or end users.
Any
of
these occurrences could also result in the loss of or delay in market acceptance
of our products, either of which would reduce our sales and harm our business.
We are also exposed to the risk of product returns from our customers as a
result of contractual stock rotation privileges and our practice of assisting
some of our customers in balancing their inventories. Overstocking has in the
past led and may in the future lead to higher than normal returns.
Our
failure to effectively manage our inventory levels could materially and
adversely affect our liquidity and harm our business.
Due
to
rapid technological change and changing markets we are required to manage our
inventory levels carefully to both meet customer expectations regarding delivery
times and to limit our excess inventory exposure. In the event we fail to
effectively manage our inventory our liquidity may be adversely affected and
we
may face increased risk of inventory obsolescence, a decline in market value
of
the inventory, or losses from theft, fire, or other casualty.
We
may be unable to produce sufficient quantities of our products because we depend
on third party manufacturers. If these third party manufacturers fail to produce
quality products in a timely manner, our ability to fulfill our customer orders
would be adversely impacted.
We
use
contract manufacturers and original design manufacturers for electronics
manufacturing of most of our products. We use these third party manufacturers
to
help ensure low costs, rapid market entry, and reliability. Any manufacturing
disruption could impair our ability to fulfill orders, and failure to fulfill
orders would adversely affect our sales. Although we currently use four
electronics manufacturers for the bulk of our purchases, in some cases a given
product is only provided by one of these companies. The loss of the services
of
any of our significant third party manufacturers or a material adverse change
in
the business of or our relationships with any of these manufacturers could
harm
our business. Since third parties manufacture our products and we expect this
to
continue in the future, our success will depend, in part, on the ability of
third parties to manufacture our products cost effectively and in sufficient
quantities to meet our customer demand.
We
are
subject to the following risks because of our reliance on third party
manufacturers: reduced management and control of component purchases;
reduced control over delivery schedules, quality assurance and manufacturing
yields; lack of adequate capacity during periods of excess demand; limited
warranties on products supplied to us; potential increases in prices;
interruption of supplies from assemblers as a result of a fire, natural
calamity, strike or other significant event; and misappropriation of our
intellectual property.
We
may be unable to produce sufficient quantities of our products because we obtain
key components from, and depend on, sole or limited source
suppliers.
We
obtain
certain key parts, components, and equipment from sole or limited sources of
supply. For example, we purchase most of our dial-up and broadband modem
chipsets from Conexant Systems, Agere Systems, and Ikanos Communications.
Integrated circuit product areas covered by at least one of these companies
include dial-up modems, DSL modems, cable modems, networking, routers, and
gateways. In the past we have experienced delays in receiving shipments of
modem
chipsets from our sole source suppliers. We may experience similar delays in
the
future. In addition, some products may have other components that are available
from only one source. If we are unable to obtain a sufficient supply of
components from our current sources, we would experience difficulties in
obtaining alternative sources or in altering product designs to use alternative
components. Resulting delays or reductions in product shipments could damage
relationships with our customers, and our customers could decide to purchase
products from our competitors. Inability to meet our customers’ demand or a
decision by one or more of our customers to purchase products from our
competitors could harm our operating results.
We
face significant competition, which could result in decreased demand for our
products or services.
We
may be
unable to compete successfully. A number of companies have developed, or are
expected to develop, products that compete or will compete with our products.
Furthermore, many of our current and potential competitors have significantly
greater resources than we do. Intense competition, rapid technological change
and evolving industry standards could result in less favorable selling terms
to
our customers, decrease demand for our products or make our products
obsolete.
New
environmental regulations may increase our manufacturing costs and harm our
business.
The
State
of
California and other states have
implemented regulations requiring the use of highly efficient power cubes.
These
new requirements will affect
many of
our products and will
typically
result
in an increase of
$0.20
to $0.70 in our cost to produce those products that use U.S. power cubes. This
is expected to reduce our gross margin for those products.
Changes
in current or future laws or governmental regulations and industry standards
that negatively impact our products, services and technologies could harm our
business.
The
jurisdiction of the Federal Communications Commission, or the FCC, extends
to
the entire United States communications industry including our customers and
their products and services that incorporate our products. Our products are
also
required to meet the regulatory requirements of other countries throughout
the
world where our products and services are sold. Obtaining government regulatory
approvals is time-consuming and very costly. In the past, we have encountered
delays in the introduction of our products, such as our cable modems, as a
result of government certifications. We may face further delays if we are unable
to comply with governmental regulations. Delays caused by the time it takes
to
comply with regulatory requirements may result in cancellations or postponements
of product orders or purchases by our customers, which would harm our
business.
In
addition to reliability and quality standards, the market acceptance of our
VoIP
products and services is dependent upon the adoption of industry standards
so
that products from multiple manufacturers are able to communicate with each
other. Standards are continuously being modified and replaced. As standards
evolve, we may be required to modify our existing products or develop and
support new versions of our products. The failure of our products to comply,
or
delays in compliance, with various existing and evolving industry standards
could delay or interrupt volume production of our products, which could harm
our
business.
Regulation
of VoIP services is developing and is therefore uncertain. Future regulation
of
VoIP services could increase our costs and restrict the growth of our VoIP
business.
VoIP
services currently have different regulations from traditional telephony in
most
countries including the US. The US, various states and other countries may
impose surcharges, taxes or new regulations upon providers of VoIP services.
The
imposition of any such surcharges, taxes and regulations on VoIP services could
materially increase our costs, may limit or eliminate our competitive pricing
and may require us to restructure the VoIP services we currently offer. For
example, regulations requiring compliance with the Communications Assistance
for
Law Enforcement Act (CALEA) or provision of the same type of 911 services as
required for traditional telecommunications providers could place a significant
financial burden on us depending on the technical changes required to
accommodate the requirements.
In
many
countries outside the US in which we operate or our services are sold, we cannot
be certain that we will be able to comply with existing or future requirements,
or that we will be able to continue to be in compliance with any such
requirements. Our failure to comply with these requirements could materially
adversely affect our ability to continue to offer our VoIP services in these
jurisdictions.
Fluctuations
in the foreign currency exchange rates in relation to the U.S. Dollar could
have
a material adverse effect on our operating results.
Changes
in currency exchange rates that increase the relative value of the U.S. dollar
may make it more difficult for us to compete with foreign manufacturers on
price, may reduce our foreign currency denominated sales when expressed in
dollars, or may otherwise have a material adverse effect on our sales and
operating results. A significant increase in our foreign currency denominated
sales would increase our risk associated with foreign currency fluctuations.
A
weakness in the U.S. dollar relative to the Mexican Peso and various Asian
currencies including the Chinese renminbi could increase our product
costs
Our
future success will depend on the continued services of our executive officers
and key product development personnel.
The
loss
of any of our executive officers or key product development personnel, the
inability to attract or retain qualified personnel in the future, or delays
in
hiring skilled personnel could harm our business. Competition for skilled
personnel is significant. We may be unable to attract and retain all the
personnel necessary for the development of our business. In addition, the loss
of Frank B. Manning, our president and chief executive officer, or some other
member of the senior management team, a key engineer or salesperson, or other
key contributors, could harm our relations with our customers, our ability
to
respond to technological change, and our business.
We
may have difficulty protecting our intellectual property.
Our
ability to compete is heavily affected by our ability to protect our
intellectual property. We rely primarily on trade secret laws, confidentiality
procedures, patents, copyrights, trademarks, and licensing arrangements to
protect our intellectual property. The steps we take to protect our technology
may be inadequate. Existing trade secret, trademark and copyright laws offer
only limited protection. Our patents could be invalidated or circumvented.
We
have more intellectual property assets in some countries than we do in others.
In addition, the laws of some foreign countries in which our products are or
may
be developed, manufactured or sold may not protect our products or intellectual
property rights to the same extent as do the laws of the United States. This
may
make the possibility of piracy of our technology and products more likely.
We
cannot ensure that the steps that we have taken to protect our intellectual
property will be adequate to prevent misappropriation of our
technology.
We
could infringe the intellectual property rights of others.
Particular
aspects of our technology could be found to infringe on the intellectual
property rights or patents of others. Other companies may hold or obtain patents
on inventions or may otherwise claim proprietary rights to technology necessary
to our business. We cannot predict the extent to which we may be required to
seek licenses. We cannot assure that the terms of any licenses we may be
required to seek will be reasonable. We are often indemnified by our suppliers
relative to certain intellectual property rights; but these indemnifications
do
not cover all possible suits, and there is no guarantee that a relevant
indemnification will be honored by the indemnifying party.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We
held
our Annual Meeting of Stockholders on June 26, 2008. At the Annual Meeting,
the
stockholders voted (All share numbers have been adjusted to reflect the 1-for-5
reverse split of our common stock, which was effective on August 7,
2008):
1.
To
elect five (5) directors to serve for the ensuing year and until their
successors are duly elected. The votes cast were as follows:
Nominees
|
|
For
|
|
Withheld/Abstain
|
|
Frank
B. Manning
|
|
|
1,619,194
|
|
|
54,295
|
|
Peter
R. Kramer
|
|
|
1,615,755
|
|
|
57,734
|
|
Bernard
Furman
|
|
|
1,619,052
|
|
|
54,437
|
|
J.
Ronald Woods
|
|
|
1,613,912
|
|
|
59,579
|
|
Joseph
Donovan
|
|
|
1,614,262
|
|
|
59,227
|
|
2.
To
consider and act upon a proposed plan to authorize, but not require, Zoom
Technologies to effect a reverse stock split of Zoom Technologies’ Common Stock
at a ratio within the range of one-for-two and one-for-nine, to be determined
by
the Board of Directors in their discretion and calculated in their judgment
to
achieve the minimum bid price requirements of the Nasdaq Capital Market for
Zoom
Technologies’ Common Stock while allowing Zoom Technologies to continue to meet
the other listing requirements for the Nasdaq Capital Market. The votes cast
were as follows:
For
|
|
Against
|
|
Abstain
|
|
Broker
Non-Votes
|
|
1,511,299
|
|
|
15,699
|
|
|
5,198
|
|
|
0
|
|
ITEM
6. EXHIBITS
Exhibit
No.
|
|
Exhibit
Description
|
|
|
|
31.1
|
|
CEO
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of
2002
|
|
|
|
31.2
|
|
CFO
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of
2002.
|
|
|
|
32.1
|
|
CEO
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002.
|
|
|
|
32.2
|
|
CFO
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the Company
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
ZOOM
TECHNOLOGIES, INC.
(Registrant)
|
|
|
Date:
August 13, 2008
|
By:
/s/ Frank B. Manning
|
|
Frank
B. Manning
President
(Principal
Executive Officer)
|
|
|
Date:
August 13, 2008
|
By:
/s/ Robert A. Crist
|
|
Robert
A. Crist
Vice
President of Finance and Chief Financial Officer
(Principal
Financial and Accounting
Officer)
|
EXHIBIT
INDEX
Exhibit
No.
|
|
Exhibit
Description
|
|
|
|
31.1
|
|
CEO
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
31.2
|
|
CFO
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.1
|
|
CEO
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.2
|
|
CFO
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|